Ubiquiti Soars 20%: FYQ4 Beats, Q1 View Crushes Estimates

By Tiernan Ray

Shares of wireless networking equipment vendor Ubiquiti Networks (UBNT) are up $4.20, or almost 20%, at $25.40, in late trading, after the company this afternoon reported fiscal Q4 revenue and profit per share that topped analysts’ expectations, and offered a forecast for this quarter well above expectations.

Revenue in the three months ended in June rose to $101.2 million, yielding EPS of 33 cents, excluding some costs.

Analysts had been modeling $94 million and 27 cents.

For the current quarter, the company sees revenue in a range of $116 million to $122 million, and EPS of 38 cents to 41 cents, excluding some costs. That is well above the consensus for $96 million and 27 cents.

Update: Following the report, CEO Robert Pera was kind enough to chat with me by telephone.

Ubiquiti is competing with a number of much larger networking equipment vendors, including Aruba Networks (ARUN), Ruckus Wireless (RKUS), and Cisco Systems (CSCO), and Pera made a point of returning multiple times to the theme of how the company’s equipment is not only technically better, but also less expensive, allowing for the build-out of wireless access networks around the world that are helping to bridge the digital divide.

Said Pera, “The company has been highly polarized since our IPO” in October of 2011.

“We have a unique business model: we don’t have a sales team, don’t have a marketing team. We use the power of Internet and information transparency to disrupt markets.”

By disrupting markets, he means “We are bridging social inequality on a global basis” by providing low-cost infrastructure that has allowed thousands of small businesses to pop up as service providers. Ubiquiti’s customers use its “AirMax” product to offer fixed wireless access that can replace wired connections:

We deploy millions and millions of outdoor internet connections, in Brazil, the Middle East, and southeast Asia, month other places. We have managed to bridge the digital divide. Not only have we done this, we’ve created tens of thousands of entrepreneurs who’ve built businesses using our technology.The reason no one has understood this is we expose the inefficiency of relationships in providing technology value. Look at Ruckus or Aruba or Cisco. They all have these huge sales teams and huge processes and multi-tiered distribution and training. All these people are in collusion to keep prices high and make as much money off the customers as possible. We innovate and the performance is far superior to theirs. We empower people who don’t have financial or technical means to get the technical information they need. In aggregate, there are thousands of these little service providers around the world. Some of them started from with little to no money, with a single base station, and they were able in no time to get to a return on investment. Now some of them have tens of thousands of subscribers.

Pera accuses Cisco and the rest of wanting to “keep very high gross product margins, with a pretty deep kind of system of trainers and resellers.”

Likewise, “Ruckus deploys big sales teams and bid on projects.”

“The basic technology of a Cisco box [access point] might cost $20 to make, but it can cost the end user hundreds of dollars.”

In contrast, the entry-level price for Ubiquiti’s AirMax access point can be $60 per unit, with “subscriber stations” deployed as on-premise equipment in the “low $30s,” he says.

Pera clarifies, “We are basically a software company,” though the company is not averse to re-writing some aspects of the guts of the box itself. For AirMax, the company uses off-the-shelf WiFi silicon, but it actually “ripped out” the way the spread-spectrum access protocol is implemented and built “our own proprietary CDMA protocol.”

Pera says AirMax had been the company’s main focus, but then in 2011 it entered the “managed enterprise WiFi” access point market. The company refers to market research data showing that it has passed Ruckus and is now in fourth place in that market behind number-one Cisco, number two Aruba, and Hewlett-Packard (HPQ) in third place. Pera expects by next year, Ubiquiti will pass Cisco to claim top spot in enterprise Wifi.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.